Japan's finances

A touch-up won't do

The government still needs to mend its ways

A BIT of growth has put a prettier face on many of Japan's economic problems lately. But the government's cavalier way with public money remains as unattractive as ever. On March 9th, the cabinet approved a long-debated plan to “privatise” Japan's profligate public road corporations—resulting in little more than a makeover for them. Meanwhile, the state-backed Industrial Revitalisation Corporation was trying in vain this week to justify its planned bail-out of a large cosmetics company—even though another Japanese firm has already offered to rescue it with private money. These unfortunate habits make it hard to be cheery about Japan's public finances, even though, as the budget that cleared parliament's lower house last week suggests, the current upturn may bring mildly good news.

The new budget calls for ¥82 trillion ($732 billion) of spending in the year beginning April 1st, roughly the same as this year. The encouraging part is that tax revenues, which slid in 2001-02 as the economy tumbled, will probably stabilise, and perhaps even recover a bit, if the economy keeps expanding.

The Economist's poll of forecasters predicts 2.6% growth in 2004, highly respectable after the last decade's woes. The government's own calculations show that total tax revenues should remain roughly unchanged in the coming fiscal year. That should bring a halt, at least for now, to the sharp rise in borrowing that has occurred during the first three years of Junichiro Koizumi's term as prime minister. The government now pays for 45% of all new spending with borrowed money (see chart); and total public debt is around 150% of GDP.

A long period of sustained economic growth would help, but the government will still have to take tough measures eventually. So this week's decision on road “privatisation” is especially discouraging. This was to be one of Mr Koizumi's signature reforms, along with the privatisation of the postal system. Yet after three years in office, all he has come up with is a plan to alter the way in which the government subsidises pointless new highways.

Japan's existing network of toll roads, along with its ¥40 trillion in associated debts, will be rolled into a single entity, which will use toll revenues to repay the debt over the next 45 years. The government will also move the road-building bits of the old public corporations into six new, nominally private, companies. It expects these to borrow fresh money—crucially, with the government's backing—to finance new roads that few onlookers expect to offer commercial value. It is not a pretty sight.